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How Has the Coronavirus Pandemic Affected Bankruptcy Cases?

May 15th, 2020 at 11:54 am

TX bankrutpcy lawyer, Texas bankruptcy laws, Nobody wants to file for bankruptcy. Even though you can discharge your debts so that you are no longer legally liable for them, there are a few negative consequences that come from filing for bankruptcy, including a hit to your credit score. However, if you are one of the millions of Americans who are struggling financially, bankruptcy may be the solution. The current coronavirus pandemic has hit the U.S. economy hard, causing unemployment to soar to levels unseen since the Great Depression. The coronavirus has affected many things, including making temporary changes to the bankruptcy code.

The CARES Act

Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the economic crisis emerging from the pandemic. Valued at more than $2 trillion, the CARES Act was monumental for the U.S. as it is the largest stimulus package to become enacted in the history of the country. One of the most popular benefits the Act provides is the economic impact payments that are given to most households and individuals. Single tax filers will receive $1,200, while married couples who file jointly will receive $2,400. Each child that an individual or married couple has that is under 17 will receive an additional $500.

The economic impact payments have greatly helped those who have lost their jobs or have had their hours reduced because of the pandemic. However, for many households, the economic impact payments may not be enough to make the monthly obligations for all of their debts. To file for bankruptcy, you have to meet certain income requirements, which has led some to worry about how the economic impact payments will affect their status.

Temporary Changes to the Bankruptcy Code

When an individual files for bankruptcy, their income and assets are examined to determine if they are eligible for bankruptcy. To ensure all bankruptcy trustees are on the same page, the U.S. Trustee Program (USTP) issued a notice to address these issues that may arise because of the pandemic.

The notice stated that the economic impact payments are not to be included as “current monthly income” or “disposable income.” More specifically, the economic impact payments should not be used in any calculations to figure a person’s income and should not be included as a factor in determining whether or not a person can repay his or her debt in Chapter 7 or Chapter 13 bankruptcy. The notice also states that any trustee that attempts to recover the economic impact payments to become a part of the bankruptcy estate must notify the USTP before doing so.

Our San Antonio, TX Bankruptcy Attorney Is Here For You

The idea of getting a bankruptcy can be daunting to some, but sometimes it is the best option. At the Law Offices of Chance M. McGhee, we understand that you may be concerned about your eligibility for bankruptcy with all of the changes that have taken place. Our skilled New Braunfels, TX bankruptcy lawyer can answer any questions that you might have about your eligibility or even just about bankruptcy in general. To speak with an attorney about your case, call our office today at 210-342-3400.

 

Sources:

https://www.justice.gov/ust/file/cares_act_recovery_rebate_notice.pdf/download?fbclid=IwAR1FVLAkidW9nd5F8lAzAJ4EzJLrgj8_Ok-eIXKxvVxJQGH5GBou1d-kui0

https://www.congress.gov/bill/116th-congress/senate-bill/3548/text?q=product+actualizaci%C3%B3n

 

 

New Modified 7-Year Chapter 13 Plans

May 11th, 2020 at 7:00 am

The coronavirus CARES Act temporarily allows ongoing Chapter 13 plans to be amended or “modified” to last a total of 7 years (instead of 5). 

 

Last month we described the changes to bankruptcy law made by the coronavirus CARES Act enacted on March 27, 2020. One of those changes is the ability to extend the length of ongoing Chapter 13 payment plans. Until now these previously-approved plans could last from a usual minimum of 3 years to a maximum of 5 years. That maximum has now been extended to 7 years.

Longer Plans Can Be Very Helpful

Overall, longer Chapter 13 payment plans give you more flexibility. And greater flexibility is one of the main advantages of the Chapter 13 bankruptcy option.

Usually you want to finish your bankruptcy case as soon as possible to get on with life. But often having more time within Chapter 13 can be a huge benefit.

You choose Chapter 13 over Chapter 7 “straight bankruptcy” to meet a specific goal (or two). You’re saving your home from foreclosure, or cramming down a vehicle loan, or paying nondischargeable income taxes. You’re keeping an asset you’d otherwise lose, catching up on child or spousal support, or saving a sole proprietorship business.  

To accomplish these goals you have to pay a certain amount into your Chapter 13 plan over time. Having more time to do so means being able to pay less per month during the plan. This can make the difference between a plan payment that you can’t afford and one that you can. So, having the option of two more years to finish off a payment plan can make the difference between an impossible plan and a feasible one. It’s the difference between an unsuccessful Chapter 13 case and a successful one.

Longer Plans during the Pandemic

This is especially true during this time of the COVID-19 pandemic. If you lost your job or have taken a pay cut while you’re in a Chapter 13 case, you may not be able to make your plan payment at all. Or you may only be able to pay a lower amount.

More time to pay means that you would likely be able to skip some payments if your unemployment is temporary. You would likely be able to reduce the plan payments—either temporarily or from now on—and still finish successfully.

This greater flexibility could well become especially important going forward. That’s because for most of us the pandemic’s financial consequences will likely be playing out for many months. So having this extra two-year cushion to finish your case successfully may become invaluable.

Only Court-Approved Plans Included

However, these new 7-year Chapter 13 payment plans have two strict timing considerations.

First, this 7-year change applies “to any case for which a plan has been confirmed… before the date of enactment of this Act.” Coronavirus Aid, Relief, and Economic Security Act (“CARES”), Section 1113(b)(1)(D(ii). CARES was enacted on March 27, 2020. The “confirming” of a plan is the bankruptcy judge’s formal approval of a plan that you and your bankruptcy lawyer proposed. Confirmation usually occurs at or around the time of your “confirmation hearing.” That’s usually happens about two months after you file your Chapter 13 case.

So to be able to extend your plan up to 7 years you must have had a court-confirmed plan by March 27. Even if you’d filed your case but your plan wasn’t confirmed by that date, you’re limited to the 5-year maximum.

Second, this 7-year provision has a “sunset” clause. It’s deleted from the Bankruptcy Code effective “on the date that is 1 year after the date of enactment.” CARES, Section 1113(b)(2). So assuming you had a confirmed plan before March 27, 2020, you must successfully modify your payment plan by March 26, 2021. Otherwise you’d lose out on this temporary 7-year plan modification option.

The Primary Condition to Meet

The new law says that you can modify a plan if you are “experiencing or [have] experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID–19) pandemic.” CARES, Section 1113(b)(1)(C). What a “material financial hardship” is, especially one “due… indirectly… to the… pandemic,” isn’t clear. Presumably a job or income loss related in any way to the pandemic should count. Beyond that bankruptcy judges will be making case by case decisions about what circumstances qualify.  

The Usual Other Conditions for Modification Still Apply

The modified plan also must meet the normal set of conditions laid out in Chapter 13 of the Bankruptcy Code. (“Sections 1322(a), 1322(b), 1323(c), and the requirements of section 1325(a) [of the Bankruptcy Code] shall apply to any [such plan] modification… .” CARES, Section 1113(b)(1)(C).) Generally these are the same conditions that you had to meet to get your original plan—or a previous modified plan—approved. Contact with your bankruptcy lawyer about qualifying.

Other Changes May Be Coming

There will very likely be more legislation coming from Congress regarding the pandemic. Some may tweak the Bankruptcy Code further. The 7-year provision may be extended more, such as to new Chapter 13 cases. We will report on any such future changes affecting bankruptcy.

 

Protecting Your Pandemic Relief Payment from Your Bank

May 4th, 2020 at 7:00 am

If you owe money to the bank or credit union where your $1,200 relief payment is being deposited, can it take that money to pay itself first?

 

Our last blog post was about whether your creditors can seize the $1,200 (or so) pandemic relief payments. Today’s is about one specific class of creditors: your own bank or credit union. What if you have a debt to the financial institution where your relief money is being direct-deposited? Can it pay itself to cover your debt instead of paying you? Would you only get whatever’s left, if any?

The Banker’s Powerful Right of Setoff

To force payment from your bank account, most creditors must sue and get a judgment against you first. So the big focus in last week’s blog post was on determining whether you had a judgment against you, and a resulting garnishment order on the bank account where your coronavirus relief payment was arriving. If no judgment, than no garnishment, and the relief payment is safe from creditors.

But the bank where you have your account is different. (All references to banks in this blog post also include credit unions and other financial institutions.) Banks have a right of setoff.

The basic idea is that money you have in a checking or savings account is money the bank owes you. It can set off its debt to you against your debt to it. It zeros out its debt to you (by taking the money in your account) and lowers your debt to it by the same amount. The practical effect is that money comes out of your checking/savings account to pay off or pay towards your debt.

This right is put into likely every contract you enter into with your bank governing your deposit accounts. For example, here’s the pertinent language from a recent 64-page Wells Fargo Bank Deposit Account Agreement:

[W]e have the right to apply funds in your accounts to any debt you owe us. This is known as setoff. When we setoff a debt you owe us, we reduce the funds in your accounts by the amount of the debt. We are not required to give you any prior notice to exercise our right of setoff.

A debt includes any amount you owe individually or together with someone else both now or in the future. It includes any overdrafts and our fees. We may setoff for any debt you owe us that is due or past due as allowed by the laws governing your account. If your account is a joint account, we may setoff funds in it to pay the debt of any joint owner.

So, in general a bank can take the relief money as it arrives into your account. It uses the money to pay any debt you owe the bank. That debt may be on the account itself—such as an overdraft fee—or any other debt you owe it.

Special Credit Card Law

This right of setoff usually does not apply to unsecured consumer credit card debts. Under Federal law

A card issuer may not take any action to offset a cardholder’s indebtedness arising in connection with a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer…   .

15 U.S.C. Section 1666h(a). For more details see the related regulations at 12 C.F.R. § 1026.12(d).

So, if you owe your bank on a credit card, it can’t take your relief payment to pay that debt. (This assumes the bank hasn’t sued you and gotten a judgment and garnishment on that account.)

Special Closed Account Rule

What if you had an account at a bank but either you’ve closed it or the bank has done so? In particular, what if the relief payment is slated to come to that closed account? That’s what would happen if you had the IRS send last year’s tax refund to that account (while still open).

In this situation the bank can’t take your relief payment to pay a debt you owe to the bank. Its right to setoff is cut off when either you or the bank close the account. 31 C.F.R. § 210.4(c)(3).

This means that the bank has to return the payment to the IRS (actually the U.S. Treasury). Then you should receive the payment by paper check through the mail. How long before you’d receive that check? The lower your income the quicker the IRS is mailing the paper checks. Here’s a recent article listing the mailing dates based on your adjusted gross income.

Therefore, in some circumstances it may make sense to close your account to prevent a setoff. The delay in receiving the payment may be worth avoiding losing some or all of it through a setoff. Then of course when you receive the check, cash or deposit it at a different financial institution.

If this is your situation you’d likely benefit from talking with a bankruptcy lawyer about this, and about your overall financial options.

Important Exception to the Closed Account Rule

Be careful about one important twist. If you believe your bank closed your account because of unpaid fees, it may not actually be closed. The bank may have charged off the account with a negative balance but not legally closed that account. Then this closed-account exception would not apply. The bank could pay the unpaid fees with your relief payment when it hits your account. It could also set off any other debts you may owe to the bank (other than credit cards). Again, this is a situation to discuss with a lawyer.

Local Pandemic Collection Protections May Apply

Last week we gave a list of state emergency orders preventing seizure of the relief payments to pay ordinary creditors. Most of these addressed creditor garnishment of bank accounts. Most did not directly address the separate question of setoffs by the banks themselves. However, some of those orders did so, including:

 This situation is constantly changing so it’s worth seeing whether your state has created similar setoff protections.

Some Banks’ Voluntary Policies

Some individual banks have announced that they’re not exercising their setoff rights specifically regarding relief payments. These include JP Morgan Chase, Citibank, Bank of America, USAA, and Wells Fargo, and likely others.

Because these are voluntary, and temporary, the exact details will vary at each bank, and may change. They may even vary customer by customer. So be careful, and find out whatever details you can before relying on these voluntary policies.

 

What Is an Automatic Stay in a Texas Bankruptcy?

April 30th, 2020 at 1:24 am

TX bankruptcy lawyer, Texas chapter 13 lawyer, Texas chapter 7 lawyer, For most people, filing for bankruptcy is a last resort. It can be easy to dig yourself into a pit of debt that you are unable to climb out of. Once the bills start becoming due, it can feel like an ocean wave washing over you, with you struggling to stay above water. Not paying your bills can cause creditors to resort to collections actions, such as wage garnishment and repossession. Once you file for bankruptcy, however, all of those collections actions must stop. This is what is known as the automatic stay.

Understanding the Automatic Stay

The automatic stay is a provision in the U.S. Bankruptcy Code that temporarily halts collections attempts from all creditors. The automatic stay goes into effect immediately after you file for bankruptcy and prevents any and all creditors from contacting you about debts you may have with them. The automatic stay does not last forever. As soon as your bankruptcy case is finished, the automatic stay is lifted.

What Can the Automatic Stay Prevent?

The automatic stay is meant to stop creditors from performing a variety of collections activities while you are going through with your bankruptcy. This was meant to help keep things fair among creditors, to prevent one creditor from settling their debts over another, but it also helps the person filing for the bankruptcy. Here are a few things the automatic stay can prevent from happening:

  • Foreclosure or eviction: The automatic stay prevents the completion of a foreclosure on your home or eviction from a place you rent. However, the automatic stay does not prevent foreclosure or eviction from happening. Your creditor can file a petition for the foreclosure to proceed, and mortgage debt is not discharged with a Chapter 7 bankruptcy, leaving you still responsible after the bankruptcy is over.
  • Wage garnishments: If you have had creditors garnish your wages, they are not permitted to do so during the time that the bankruptcy case is open. You should be receiving your full wages once the automatic stay is in place, as long as the garnishment is not for secured debt.
  • Repossessions: The automatic stay can also help prevent repossessions from happening on property that you do not fully owe yet, such as vehicles. Auto debt is also not discharged in Chapter 7 bankruptcies, which is why you must work out a repayment plan with your lender. As soon as the bankruptcy is over, your lender can repossess your vehicle if you have not worked out a repayment plan.

Our San Antonio, TX Bankruptcy Attorney is Here to Help

In some situations, creditors can be aggressive and intrusive into your life. If you have filed for bankruptcy, you should not be experiencing any collections actions against you. If you have creditors who are still trying to collect, you should speak with a skilled Boerne, TX bankruptcy lawyer. At the Law Offices of Chance M. McGhee, we can help you through your bankruptcy case. To schedule a free consultation, call our office today at 210-342-3400.

 

Sources:

https://www.investopedia.com/terms/a/automaticstay.asp

https://upsolve.org/learn/what-is-automatic-stay-bankruptcy/

Protecting Your Pandemic Relief Payment from Creditors

April 27th, 2020 at 7:00 am

Your $1,200 or so coronavirus relief payment is subject to seizure by your creditors, if they have a garnishment order on your bank account.  

 

Our blog post four weeks ago was about the $1,200 pandemic relief payments going out to most U.S. adults. The CARES Act explicitly protected these payments from seizure for certain governmental debts. Generally, the payments can’t be reduced or taken to pay past-due federal taxes and student loans. They can be for past-due child support obligations.

But the CARES Act made no mention of protection from debts owed to non-governmental creditors. So the relief payments are generally subject to possible seizure by your creditors. Today we address this concern about private creditors’ access to these payments.

There are two classes of creditors at play:

1)      Setoffs by your own bank or credit union for a debt you owe to it

2)      Garnishment by other creditors which have a judgment against you

Next week we address setoffs by for fees or other debts owed to your own financial institution. Today is about protecting your relief payment from other creditors.

Judgments and Garnishment Orders

Generally a non-governmental creditor can’t take money from your bank account without a court’s garnishment order. And to get a garnishment order a creditor virtually always must first sue you and get a judgment. (This assumes that the creditor isn’t a governmental agency or the bank/credit union itself.) If a creditor has an active garnishment order on your bank/credit union account, your relief payment would arrive there and go to pay the debt instead of giving you the financial relief you need.

Do You have a Garnishment Order on Your Bank/Credit Union Account?

This question is not necessarily so easy to answer, for a number of reasons.

First, although most of the time you’d know that you received lawsuit papers, not necessarily. You may have not noticed it in the mail.  It may not have looked much different from other collections paperwork. If you’ve moved a lot, it’s possible you didn’t even get the lawsuit papers.

Second, you may not know that the lawsuit resulted in a judgment. If you didn’t respond within a very short time to the lawsuit papers, you probably lost the lawsuit by default. That almost always immediately turns into a judgment—a court decision that you owe the debt. The judgment gives the creditor power to—among other things—garnish your bank account.  

Third, you may not know about the garnishment order, or the pertinent details about it. For example, you may think it only applies to your paycheck, not your bank account. Or the bank garnishment order may have happened a while ago and you don’t realize that it’s still active.   

Fourth, the laws about lawsuits, judgments, and garnishments are detailed, complicated, and different in every state. And they change (sometimes in a good way, as we show below.)  So what you may have heard in one situation may not apply at all to you regarding these relief payments.

Finding Out If You Have a Bank Garnishment Order

Some common sense questions you should ask yourself. Have you:

  • ever received lawsuit papers and then did not fully resolve the debt?
  • had any kind of creditor garnishment or seizure, even if unrelated to your bank/credit union account?
  • had anything repossessed, especially a vehicle, where you may still owe a balance?
  • gone through a real estate foreclosure in which you may still owe a money to junior mortgage or other lienholder?
  • moved from another state and thought you left unresolved debts behind?

In these and similar situations you may have a judgment against you and a garnishment on your bank/credit union account. So your relief money would likely go to pay the judgment before you’d get any of it.

Is there any more direct way of finding out if there’s a garnishment order? Yes, you could contact your bank/credit union and ask. The problem is that in the midst of the pandemic you may well have trouble getting anyone to answer. More to the point, you’d likely have trouble getting through to somebody who could accurately and reliably answer this question.

A debtors’ rights or bankruptcy lawyer could help. He or she likely knows the right people to call at your financial institution, including that institution’s lawyers.

 What To Do If You Do Have a Garnishment Order

First, every state has exemptions that you may be able to claim to protect the relief money from garnishment. Each state has different procedures for claiming those exemptions. An extra challenge during the pandemic is getting access the courts to assert your exemption rights. Many courts are physically closed, you may be subject to a stay-at-home order, and contacting a lawyer may be harder. But if you don’t want to lose your relief money, you’ll likely need to assert your exemption protections.

Second, you may want to consider some other tactical steps:

  • If a garnishment order has expired and the creditor needs to renew it, you may have time to take the money out of the account immediately after it arrives.
  • Has the IRS has not yet direct-deposited your payment? Then you may be able to redirect it to an account at a different (non-garnished) financial institution. Go to the Get My Payment webpage to provide new bank account routing information (if it’s not too late).
  • Are you currently waiting to receive the relief payment in paper checks? Consider NOT providing the IRS direct deposit information even though that may delay the payment. (Here’s an article with the dates that the IRS is mailing out paper checks, based on income.)

Third, a number of states are issuing orders to prevent garnishments of bank accounts:

California Governor’s Executive Order N-57-20District of Columbia Act 23-286

Illinois Governor’s Executive Order 2020-25

• Indiana Supreme Court Order in case nos. 20S-MS-258 and 20S-CB-123

Massachusetts emergency regulation 940 C.M.R. 35.00

Nebraska Attorney General Warning

• New York Attorney General Guidance on CARES Act Payments

• Oregon Governor’s Executive Order 20-18

• Texas Supreme Court Tenth Emergency Order Regarding the Covid-19 State of Disaster

Virginia Supreme Court Order Extending Declaration of Judicial Emergency

• Washington State Governor’s Proclamation 20-49 Garnishments and Accrual of Interest

This list is expanding all the time. So if your state isn’t listed here it may have acted after this writing (4/27/20).

This IS Complicated

Garnishment law is detailed and not at all straightforward. And that was before all the legal and serious practical complications caused by the pandemic. So if at all possible, get through to a debtor’s rights or bankruptcy lawyer. We have spent our professional lives helping people deal with garnishments and protect their assets from creditors. This is just another twist on what we do all day every day.

 

Student Loan Changes in the CARES Act

April 20th, 2020 at 7:00 am

The recent coronavirus relief law includes help for some student loan borrowers—suspending payments, interest, collections, credit reporting.  

 

The 880-page Coronavirus Aid, Relief, and Economic Security Act (“CARES”) has 4 pages of help for certain student loan borrowers. Section 3513 of CARES. It provides meaningful albeit temporary help, for those who qualify by having the right kind of student loan.

The Kinds of Student Loans Covered

First, the relief applies only to federal student loans, not to private student loans. The private loan portion of student loans has been growing but still only consists of about 8% of student loans. Nevertheless, private student loans total about $125 billion. The CARES Act does not help if you owe any of this.

Second, not all federal student loans are included. Direct Loans—those made directly by the federal government’s Department of Education—are covered. Federal Family Education Loans—FFELs—are covered if they’re currently owned by the federal Department of Education. FFEL loans held by commercial lenders and campus-based Perkins loans are not covered. These non-covered loans amount to only about 12 percent of federal student loan dollars, so most federal student loans are covered.

The Key Benefits

For the applicable federal student loans, CARES accomplishes the following:

  1. Suspends all loan payments through September 30, 2020.
  2. Waives interest during this suspension period.
  3. For credit reporting purposes, the lender must treat each suspended payment as if the borrower actually paid the payment.
  4. Student loan creditors must suspend involuntary collection during the suspension period.
  5. The payment suspension time counts for purpose of loan forgiveness and loan rehabilitation.

1. Payment Suspension

The new law suspends “all payments due for [applicable student] loans… through September 30, 2020.” Section 3513(a), CARES Act. The law did not specify when this non-payment period started. But since then the U.S. Department of Education has specified that the “administrative forbearance will last from March 13, 2020 through September 30, 2020.” (Administrative forbearance means a “temporary suspension of payments.”) Coronavirus and Forbearance Info for Students, Borrowers, and Parents.

If you’ve already made a payment during the same March 13 through September 30, 2020, your student loan servicer should refund it to you. This includes auto-debit payments, which are supposed to stop automatically during this same period. Coronavirus and Forbearance Info for Students, Borrowers, and Parents.

2. Interest Waiver

“[I]nterest shall not accrue on a[n applicable student] loan… for which payment was suspended for the period of the suspension.” Section 3513(b), CARES Act. So no interest will accrue during the March 13 through September 30, 2020 period. This should happen automatically, without requiring any action by you. Coronavirus and Forbearance Info for Students, Borrowers, and Parents.

3. Credit Reporting

“During [this same] period… , for the purpose of reporting information about the loan to a consumer reporting agency, any payment that has been suspended is treated as if it were a regularly scheduled payment made by a borrower.” Section 3513(d), CARES Act. The suspended payments should show as actually made payments on your credit reports.

4. Collection Freeze

“During the [same ]period [the loan servicers] shall suspend all involuntary collection related to the loan.” Section 3513(e), CARES Act. The law lists three specific types of collection that are explicitly included: wage garnishment, tax refund offset, and administrative offset by “a reduction of any other Federal benefit payment.” But it also broadly adds “any other involuntary collection activity.” Section 3513(e)(1-4), CARES Act. So during the March 13 through September 30 period, no collection activity of any kind should happen on the applicable student loans.

5. Non-Payments Count

“[E]ach month for which a loan payment was suspended [counts] as if the borrower of the loan had made a payment for the purpose of any loan forgiveness program or loan rehabilitation program… for which the borrower would have otherwise qualified. Section 3513(c), CARES Act.

This means that if you are now in an Income-Driven Repayment (IDR) plan, these months of non-payment count towards loan forgiveness as if you had made the payments. The same is true for monthly credit towards Public Service Loan Forgiveness (PSLF). Also, if you are working on “rehabilitating” your defaulted student loan, the suspended payments count as payments made for that purpose. Coronavirus and Forbearance Info for Students, Borrowers, and Parents.

 

Note: Please see our last several blog posts for information on other relevant aspects of the CARES Act. Contact your local bankruptcy lawyer to apply these to your own unique circumstances.

 

How Do I Know When Filing for Bankruptcy Is My Best Option?

April 17th, 2020 at 4:21 pm

Texas bankruptcy lawyer, TX chapter 7 attorneyBankruptcy can be a scary word and it can be even scarier if it is something you have been considering. Bankruptcy is still considered by some to be a taboo or something to be avoided at all costs. In reality, bankruptcy can be the best option for some people who are drowning in debt. Filing for bankruptcy does come with a few unfavorable consequences, which should be factored into any consideration when determining whether or not to file for bankruptcy. Speaking with a skilled Texas bankruptcy lawyer can help you understand your situation a little better.

To File Or Not to File?

It can be confusing to know whether or not you should file for bankruptcy. Every person’s situation is different, which is why every decision to file for bankruptcy is different. For the most part, you should consider filing for bankruptcy if you are unable to repay your debts after you have paid for necessities such as food, living expenses, and healthcare. However, there are a few other situations in which you may also want to consider filing for bankruptcy:

 

  • You have considered debt consolidation. There are steps that you can and should take before making the decision to file for bankruptcy. If you have a lot of debt that carries high-interest rates, you should look into consolidating some of your debt at a lower interest rate. In many cases, this lowers the monthly payment and allows you to get a handle on your debt. However, if you still cannot afford the consolidated payment, you may want to look into bankruptcy.
  • Your credit score is already low. Many people say that the only thing stopping them from filing for bankruptcy is the fact that your credit score and creditworthiness are impacted. However, if you already have a low credit score, you may be better off filing for bankruptcy and working on building your credit up.
  • You are at risk of losing your car or home. If you are behind on mortgage payments or car payments, you risk having your property foreclosed on or taken from you. When you file for bankruptcy, the automatic stay is put into place which prevents any and all debtors from collecting from you while your bankruptcy case is processed. The automatic stay does not protect your home and vehicle forever, but it can be useful to help you get back on track after a bankruptcy.

A Kerrville, TX Bankruptcy Attorney Can Help You Assess Your Situation

If you are wondering if filing for bankruptcy could be right for your situation, you should speak with a skilled San Antonio, TX bankruptcy lawyer today. At the Law Offices of Chance M. McGhee, our team is here to help you determine whether or not filing for bankruptcy is in your best interest and if so, the right bankruptcy for your situation. Call our office today at 210-342-3400 to schedule a free consultation.

 

Sources:

https://www.nerdwallet.com/blog/finance/bankruptcy-best-option/

https://www.fool.com/investing/general/2014/01/26/how-to-know-when-bankruptcy-is-your-best-option.aspx

Consumer Bankruptcy Changes in the CARES Act

April 13th, 2020 at 7:00 am

The massive $2.2 trillion coronavirus relief law also includes some legal relief for both Chapter 7 and Chapter 13 consumer debtors. 

 

If you’re thinking about filing a Chapter 7 “straight bankruptcy” case, the new CARES law may help, at least slightly. If instead you’re thinking about a Chapter 13 “adjustment of debts” case, the new law helps in more significant ways. That’s also true if you already are in a Chapter 13 case.

$1,200 Relief Checks Excluded as Income for the Means Test

To qualify to file a consumer Chapter 7 case you have to pass the “means test.” Part of that test is a rather complicated calculation of your “current monthly income.” That’s essentially the average of the last 6 full calendar months of income from virtually all sources. A single large payment—such as a $1,200 coronavirus relief payment—could pump up your “current monthly income” and make you fail the “means test.” Then you could be forced to file a multi-year Chapter 13 case instead of a 3-4 month Chapter 7 one.

The new CARES law solves that problem neatly. It simply excludes any coronavirus relief money from the definition of “current monthly income.” To be precise, the following is excluded:

Payments made under Federal law relating to the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the coronavirus disease 2019 (COVID–19).

Coronavirus Aid, Relief, and Economic Security Act (“CARES”), Section 1113(b)(1)(A).

What Payments Are Included?

This statutory language is broad. It doesn’t refer only to the one-time $1,200 (or so) relief payments. It’s clearly broad enough that it could include other “Payments made under Federal law” related to the coronavirus national emergency. That is, other such payments may be excluded from “current monthly income” for purposes of the means test.

For example, CARES provides unemployment benefits of $600 per week extra beyond the usual state-calculated weekly amounts. (See our blog post last week about the unemployment benefits under CARES.) These $600 weekly extra benefits sure sound like they’re “Payments made under Federal law” related to [this] national emergency.” Since these $600 payments can last up to 39 weeks, they can amount to way more money than the one-time $1,200 payments. So if these $600 payments are also excluded in applying the means test, that would be quite significant.

But the law may not be clear on this. At this writing, CARES is just two weeks old. How it will be applied may shift quickly, as in so many things related to the pandemic. The law may well be applied somewhat differently in different parts of the country. Contact your local bankruptcy lawyer for current information as it applies to you.

$1,200 Relief Checks Also Excluded in Confirmation of Chapter 13 Plan

Chapter 13 generally requires you to pay all of your “projected disposable income” into your 3-to-5-year payment plan. This monthly amount goes through the Chapter 13 trustee to your creditors under the terms of your plan. Then at the end of the plan you are usually debt-free (except sometimes for certain agreed long-term debts).

Your “projected disposable income” is based on virtually all your income, minus certain legally allowed expenses. The income side of this is your “current monthly income” as discussed above—based on your last 6 months of income. If that income would include a one-time coronavirus relief payment, it would greatly increase your “disposable income” and thus your required Chapter 13 plan payment.

The new CARES law solves that problem in a way similar to the above section about the Chapter 7 means test. Using the exact same language, it excludes any coronavirus relief money from the Chapter 13 definition of “current monthly income.” To again be precise, the following is excluded:

… payments made under Federal law relating to the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the coronavirus disease 2019 (COVID–19).

CARES, Section 1113(b)(1)(B).

As in the section above on Chapter 7, it’s not yet clear what federal payments are excludable. Besides the $600 weekly unemployment payments mentioned above, there may be other future coronavirus stimulus payments approved by Congress. Again, talk with your bankruptcy lawyer to get current information and advice.

Changes to Ongoing Chapter 13 Plans

During the course of a Chapter 13 you can change, or “modify” your approved payment plan under certain circumstances.  CARES added a new circumstance: if you are “experiencing or [have] experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID–19) pandemic.” CARES, Section 1113(b)(1)(C).

The bankruptcy judge still has to approve the modified plan, after the usual notice to creditors and opportunity for objection. The modified plan must comply with the usual requirements. (“Sections 1322(a), 1322(b), 1323(c), and the requirements of section 1325(a) shall apply to any [such plan] modification… .” CARES, Section 1113(b)(1)(C).)

It’s unclear what this all adds to the plan modification rights you already have, except for one huge change. The law has been clear for a long time: Chapter 13 plans cannot last longer than 5 years. CARES extended this to a new maximum of 7 years for applicable modified plans.

Although you’d think you would want to finish your plan as fast as possible, longer plans often allow you to reduce your monthly plan payments. It can give you more opportunities to preserve certain assets or collateral—keep a vehicle, save a home. Given the financial challenges so many of us are facing, this greater flexibility can make the difference between completing your case case successfully or not.  

Important: Applicability to Cases

First, the Chapter 7 means test change and the Chapter 13 plan confirmation change “apply to any case commenced before, on, or after the date of enactment of this Act.” CARES, Section 1113(b)(1)(D(i). But those changes have a sunset provision—they are deleted from the Bankruptcy Code effective “on the date that is 1 year after the date of enactment.” CARES, Section 1113(b)(2).

CARES was enacted on March 27, 2020. That means that these two changes apply to all cases filed any time before that date but only through March 26, 2021. Be careful about this deadline.

Second, the Chapter 13 plan modification change applies “apply to any case for which a plan has been confirmed… before the date of enactment of this Act.” CARES, Section 1113(b)(1)(D(ii). But, same as above, this change have a sunset provision—it is deleted from the Bankruptcy Code effective “on the date that is 1 year after the date of enactment.” CARES, Section 1113(b)(2).

So this change applies to Chapter 13 cases which had a confirmed plan before March 27, 2020, and then successfully modified its plans by March 26, 2021. Be careful about this deadline as well.

Notice that by this language this change does not apply to cases either not filed, or already filed but not yet confirmed, as of March 27, 2020. This means that people in these situations appear unable to take advantage of the 7-year provision.

Bottom line all these changes to the Bankruptcy Code are temporary, currently lasting only this one year. Then they will be deleted and the Bankruptcy Code will revert to its prior language. 

 

Enhanced Unemployment Benefits Under the CARES Act

April 6th, 2020 at 7:00 am

The greatly enhanced unemployment benefits mean much more money each week, for longer, for many more kinds of workers, and for many others.


Our blog post last week was about the emergency $1,200 Economic Impact Payment that’s “rapidly” coming to most American adults. (Plus $500 for each qualifying dependent child.) For updates on this payment since then, see the IRS’ special “Coronavirus Tax Relief” webpage. That links you to its News Release IR-2020-61, which came out on March 30, 2020. It was modified and updated on April 1, specifically about Social Security recipients.

Today’s blog post is about the new greatly enhanced unemployment benefits provided by the same law. The $2.2 Trillion Coronavirus Aid, Relief, and Economic Security Act (“CARES”) includes about $260 Billion for expanded unemployment benefits. Although that’s only about one-eighth of the whole package, it’s still a huge amount of money. By way of comparison, $260 Billion is almost 40% of last year’s entire defense budget.

These new unemployment benefits include the following distinct components.

Larger Checks—Federal Pandemic Unemployment Compensation

Individuals who already qualify for unemployment benefits under state law will get an additional $600 per week. This extra is called Federal Pandemic Unemployment Compensation. The states will pay this extra $600 per week in addition to the regular amount of unemployment benefit. Section 2104 of CARES.

This is quite a big increase, especially compared to the usual weekly amount. That usual amount varies widely. In Connecticut the maximum benefit is $631, in Florida it’s $275. No matter your state, the additional $600 per week is a very meaningful increased benefit. 

Longer Payment Period—Extended Unemployment Compensation

Individuals usually get up to 26 weeks of unemployment benefits under state law. Some states provide less. For example, Florida gives only 12 weeks of benefits. CARES adds up to 13 more weeks of benefits, for up to 39 weeks of benefits. Section 2102(c)(2) of CARES.

These additional weeks of benefits include BOTH the regular state unemployment benefit amount PLUS the $600 per week referred to above. Section 2102(d)(1)(A) of CARES.

Extension of Exhausted Benefits—Available to Work but Can’t Find Work

The new law also reinstates unemployment benefits for those “have exhausted all rights to regular compensation under the State law or under Federal law” for the benefit year. This assumes that the individual is “able to work, available to work, and actively seeking work.” Section 2107(a)(2) of CARES.

The unemployment benefit amount under this part of the law includes the regular state-determined weekly amount plus $600, as discussed above. Section 2107(a)(4) of CARES.

Pandemic-Related Individuals—Virtually Everyone Who’s Impacted

The law gives unemployment benefits to a wide array of individuals affected by the health emergency, covering 10 categories. An individual who doesn’t otherwise qualify for the unemployment benefits receives them by providing a “self-certification” stating that he or she is “unemployed, partially unemployed, or unable or unavailable to work because” of the following conditions. The individual:

  1. has been diagnosed with COVID-19 or has symptoms and is currently being diagnosed
  2. has a household member who’s been diagnosed with COVID-19
  3. is caring for a family or household member diagnosed with COVID-19
  4. has a child or other dependent who can’t go to school or a care facility because of the health emergency
  5. can’t get to the workplace because of a quarantine
  6. can’t get to the workplace because of being “advised by a health care provider to self-quarantine due to concerns related to COVID–19”
  7. was scheduled to return to work but can’t because of the health emergency
  8. became the “breadwinner or major support for a household “because the head of the household has died as a direct result of COVID–19”
  9. “has to quit his or her job as a direct result of COVID–19”
  10. lost a job because the “place of employment is closed as a direct result of the COVID–19 public health emergency”

Section 2102(a)(3)(A) of CARES.

Consistent with the other parts of the law, the amount of weekly benefit is the regular state-determined amount plus $600. Section 2102(d)(1)(A) of CARES.

Nontraditional Workers Get Benefits—More “Covered Individuals”

Self-employed and independent contractors are usually not covered by state unemployment benefits. Very significantly, many of the benefits we’re discussing here do apply to these nontraditional workers. The law says that

The term “covered individual”—(A) means an individual who

(II) is self-employed, is seeking part-time employment, does not have sufficient work history, or otherwise would not qualify for regular unemployment or extended benefits under State or Federal law or pandemic emergency unemployment compensation under section 2107 and meets the requirements of subclause (I)

Section 2102(d)(1)(A) of CARES. The reference to Section 2107 is to those who already qualify for benefits otherwise, as discussed two sections above. The other reference to subclause (l) is to the list of 10 COVID-19-related circumstances listed in the section immediately above. So the self-employed and independent contractors receive unemployment benefits if they fit any of the 10 conditions.

However, these benefits to the self-employed and independent contractors are not available to those who can work remotely—who can “telework with pay.” Also individuals “receiving paid sick leave or other paid leave benefits” don’t qualify. That’s true even if they fit into any of the 10 COVID-19-related categories discussed above.

 

$1,200 Coming Soon to Most U.S. Adults

March 30th, 2020 at 7:00 am

The huge emergency coronavirus law will provide, “as rapidly as possible,” over 80 percent of American adults with money, many getting $1,200.   


On Friday (March 27) Congress passed and the President signed into law the Coronavirus Aid, Relief, and Economic Security Act. Also known as the CARES Act, better known as the massive $2.2 trillion pandemic relief law. The stated purpose of this 880-page law:

Providing  emergency  assistance  and  health  care  response  for  individuals,  families  and  businesses  affected  by the 2020 coronavirus pandemic.

One of its major provisions is to provide most American adults a payment directly from the U.S. government. This is estimated to cost $290 billion, or about 13% of the $2.2 trillion total. This blog post discusses how much each person will receive, who will and will not, and other urgent details.

How Much Money?

This is probably the most straightforward part of this law, but it has some important twists and turns.

Every “eligible individual” will receive $1,200, if his or her adjusted gross income is no more than $75,000. If the adjusted gross income is more than $75,000, the $1,200 is reduced by 5 percent for any amount over $75,000. This means that individuals with adjusted gross income of $99,000 or more will receive nothing.

If you file a joint tax return, the joint payment will be twice as high, $2,400. And your joint adjusted gross income can be twice as high, $150,000, for the two of you to receive the full $2,400. Income beyond that would reduce the amount paid by 5 percent of the amount over $150,000.

If you file your federal tax return as a “head of household,” the adjusted gross income trigger amount is instead $112,500.  (This tax filing status is usually for single parents with children.) 

In addition to the $1,200 (or less) per adult, you receive $500 for each “qualifying child.” (See the IRS’ Qualifying Child Rules.)  In general, a qualifying child is any dependent of a taxpayer under the age of 17.  So dependents aged 17 or older do not qualify for the $500 payments.

An example: a family of two spouses filing jointly, with two under-17 children, would receive $3,400: $2,400 + $500 + $500.)

Technically, the IRS is treating this money as an advance tax credit. It will not be considered taxable income on your 2020 tax return.

Which Year’s Income Counts?

Practically speaking, look to the adjusted gross income on either your 2018 or 2019 federal tax return. The 2019 amount will count if you’ve already submitted it, or likely will if you submit it very soon. Otherwise look to your 2018 adjusted gross income.

Note: the IRS has postponed the usual April 15, 2020 deadline for submitting 2019 tax returns until July 15, 2020. (See our last week’s blog post about this.) So if it’s to your advantage to use your 2018 income, consider waiting to submit 2019 until after receiving this relief payment. On the other hand, consider filing your 2019 tax return quickly if your income went down, qualifying you for more money.

Under the language of the law it’s your 2020 income that actually counts because it’s a credit for this year. But of course nobody knows for sure how much your 2020 income will be. So the law has the IRS use your 2019 or 2018 income amount.

So what happens if you get the relief payment but your 2020 income is higher and would have reduced the payment? Regardless, you don’t have to pay back any of  the payment.

Who Is an “Eligible Individual”?

The main people who don’t qualify are “nonresident aliens” and “dependents” who can be claimed on someone else’s tax return.

Individuals on Social Security who have no other income and may not file a tax return are eligible. Individuals who have little or no income, or who receive federal benefits, are all eligible. There’s no minimum income requirement. The person just can’t qualify as a dependent for someone else, and must have a Social Security number.

What If You Owe the IRS, a Federal Student Loan, or Child/Spousal Support?

With tax or student loan debt, it doesn’t matter. The IRS can’t set off the relief check against federal taxes or student loans you owe. This is according to Sen. Chuck Grassley, chair of the Senate Finance Committee.

“The only administrative offset that will be enforced applies to those who have past due child support payments that the states have reported to the Treasury Department,” he said.

What If I Have Other Questions?

The law leaves lots of details to be worked out by the IRS. It has a special webpage called “Coronavirus Tax Relief” where it will have updated information. As of our writing of this blog post, it says the following:

Stimulus payment checks: No information available yet, No sign-up needed

Instead of calling, please check back for updates.

Please also check back with us here on our website about the timing and other practicalities of these relief payments. The statute simply says that the Department of Treasury shall pay them “as rapidly as possible.” It will take at least three or four weeks, and maybe more. We’ll dig into these important details and tell you when we know more.

In the meantime, you can also call us, your bankruptcy lawyers. We are following this closely.

 

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210-342-3400

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